998 Offers to Compromise in California

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What Is a Section 998 Offer?

A § 998 offer is a statutory offer to compromise developed with the goal of encouraging settlement between parties. A § 998 offer is a reasonable, good faith offer proposed by either the defendant or the plaintiff. A § 998 offer shifts costs to the other party so the prevailing party can recover certain costs from the losing party. This encourages both parties to evaluate the value of the case one last time before it goes to trial. Courts want to encourage settlements outside of the courtroom as much as possible, and a § 998 offer is an effective tool that could be beneficial to both parties.

Why Would I Want a Section 998 Offer?

In many cases, making a § 998 offer saves time, money, and hassle for everyone. It can help cut the legal process short and gives the other party a financial incentive to resolve things quickly and easily.

Also, because a § 998 offer shifts one party’s costs to the other party, it encourages all parties involved to think more carefully about the circumstances they’re facing. It causes the other side to reconsider the value of the case before proceeding to trial.

What Costs Can be Shifted in a Section 998 Offer?

Costs that may be shifted to the other party in a § 998 offer include:

  • Certain legal fees
  • Document filing fees
  • Expert witness fees below a certain threshold
  • Some costs associated with investigations

What Are the Elements of a 998 Offer?

To correctly make a § 998 offer, there are several required elements:

  • Must be in writing and include a statement with the terms and conditions of the award
  • The offer must specifically name CCP § 998
  • The offer must include a provision that allows the accepting party to indicate acceptance by signing a statement that the offer is accepted.

There are several limitations to a § 998 offer:

  • Cannot require release of all other potential claims against defendant (i.e. you cannot include release of liens)
  • Court must be able to assign monetary value to the 998 offer. “To trigger the potential § 998 penalties, the terms and conditions must be sufficiently certain to be capable of valuation. Otherwise, it may not be possible to determine whether any recovery at trial is ‘more favorable.’”
    Po-Jen Chen v. Interinsurance Exch. of Auto. Club (2008) 164 Cal. App. 4th 117, 121.
  • § 998 offers do not apply to eminent domain actions

Rather than drafting a § 998 Offer from scratch, you may use the following § 998 Offer Sample Judicial Council form (CIV-090) provided on the California Courts website and simply fill in the blanks. Use of the Judicial Council Form is not mandatory.

When Can I Make a 998 Offer?

California Code of Civil Procedure § 998 (b) provides that either party may make an offer at least 10 days before the commencement of trial or arbitration.

How do I accept a 998 offer?

Any acceptance of the offer, whether made on the document containing the offer or on a separate document of acceptance, shall be in writing and shall be signed by the accepting party’s attorney or by the accepting party. (Code Civ. Proc. § 998 (b))

For the offer to be valid, it must be accepted within 30 days, or before arbitration and trial, whichever occurs first. Otherwise, it is considered rejected. It can be revoked in writing within the 30 day period or at the start of arbitration or trial

What Happens if I Reject a 998 Offer?

Acceptance of a §998 offer is not mandatory – A party may decide to reject the offer if he or she believes a more favorable judgment can be won in court. However, if a party refuses a § 998 offer, proceeds with trial, and then fails to obtain a “more favorable” judgment, there are certain potential penalties that need to be carefully considered.

If the Plaintiff Rejects a Section 998 Offer:

If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, certain penalties apply. For example, if a plaintiff rejects a § 998 offer that offers $10,000, but only wins $10,000 in court, the plaintiff will be subject to the following penalties:

Mandatory Penalties:

Plaintiff’s Loses Post-Offer Costs. The plaintiff will not be permitted to recover his or her post-offer costs. Post-offer costs are all court costs which are incurred after the date the § 998 was offered. Code Civ. Proc. § 998 (c)(1)

Plaintiff Pays Defendant’s Post-Offer Costs. The plaintiff will be required to pay the defendant’s post-offer costs. Code Civ. Proc. § 998(c)(1)

Defendant’s Post-Offer Costs Deducted from Plaintiff’s Award. Furthermore, the defendant’s post-offer costs are subtracted from the plaintiff’s recovery. If those costs exceed the plaintiff’s recovery, the defendant is entitled to a judgment against the plaintiff. Code Civ. Proc. § 998(e)

Discretionary Penalties:

Plaintiff Pays Expert Witness Fees. In the court’s or arbitrator’s discretion, the plaintiff may be required to pay a reasonable sum to cover post-offer costs of the defendant’s expert witness fees “actually incurred and reasonably necessary in either or both preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant.” Code Civ. Proc. § 998(c)(1)

If the Defendant Rejects a § 998 Offer:

Similarly, if a defendant fails to accept a 998 offer from a plaintiff and the plaintiff recovers an amount greater than the 998 offer at trial or arbitration the following penalty applies pursuant to Code of Civil Procedure § 998(d):

Discretionary Penalty:

The judge or arbitrator may order the defendant to pay the plaintiff’s reasonable expert costs.

This discretionary penalty is in addition to paying for a prevailing plaintiff’s entitled costs and, if a statute or contract providing for an attorney’s fees award is involved, its legal fees as well.

Strategies in Using a 998 Offer for Attorneys’ Fees

Whether a 998 offer should be inclusive of attorneys’ fees, should be strategized to carefully consider the calculation of “costs” following a judgment. Read more about strategies and risks for using a 998 offer with or without attorneys’ fees.

Can I Use a Section 998 Offer in my Family Law Dispute?

No. “Code of Civil Procedure section 998’s provision for a statutory offer to compromise is inapplicable to proceedings under the Family Law Act.” In re Marriage of Green (1989) 213 Cal.App.3d 14, 19.  The Code of Civil Procedure section 998 does not apply to family law cases, because the Legislature has specifically provided how costs and fees are to be awarded in such proceedings. An experienced family law attorney can help discuss your family law issue and potential costs and fees.

Conclusion

Presenting plaintiff with a §998 Offer can be a useful tool in effectively settling a matter before proceeding to trial. However, certain risks and benefits should be considered when making or accepting a 998 offer to prevent an unintended negative outcome.

Contact an Experienced California Attorney Today!

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